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U.S. Economy Rebounds Despite International Unrest

John Wagner accompanies his latest set of figures from the industry with some brief commentary and his opinions about the statistics

Despite a global situation that feels like the world is on fire (Russia, Ukraine, Syria, Iraq, Iran, Afghanistan, Israel/Gaza, China/Japan, and an Ebola outbreak in Africa), the United States economy is amazingly invigorated and moving forward.

The U.S. economy experienced a strong rebound this spring after a terrible first quarter, showing positive growth over the past six months and hopes for continued momentum in the second half of 2014.

The Commerce Department said that gross domestic product, the broadest measure of goods and services produced in our economy, advanced at a seasonally adjusted annual rate of 4.0 percent in the second quarter.

Keep in mind this was helped by a build-in inventory and consumer spending. The question is what happens after those inventories are built? Will consumers continue to spend through the remainder of the year?

The Census Bureau reports durable goods orders (products that last more than three years) were up 0.7 percent in June, led by orders for aircraft. Stripping away plane sales, new orders fell 0.1 percent from May but were up 4.9 percent from June of last year. Durable goods orders have increased in four of the last five months.

The Census Bureau also reported that new home sales dropped 8.1 percent in June and are down 5 percent year over year. Over the last two months new housing is off 16 percent, which is a real disappointment.

Retail sales were up 0.2 percent in June and May’s figures were adjusted to a 0.5 percent gain. Auto sales took a hit, falling 0.3 percent, as did garden equipment and building materials, which were down 1 percent. Department stores were the winners, with a 1.1 percent uptick. Retail is a positive story, having grown 4.2 percent in June year over year.

Transborder Freight Data released by the U.S. Department of Transportation indicates that U.S. NAFTA trade increased by 5.4 percent in May. Trucks carried the majority of the freight at 59.9 percent and rail carried 15.2 percent. Exports were $31.8 billion and imports were $30.4 billion. Trucks carried 67.3 percent of the trade into Mexico and 53.9 percent into Canada.

The Federal Reserve Bank’s Beige Book released July 16 confirmed what we in logistics already know – The economy expanded from May to June, with trucking and rail services in high demand. Port utilization was up as well. The Atlanta, Cleveland, Richmond, and Kansas City districts all reported a shortage of truck drivers, indicating that capacity constraints are reaching a tipping point that could cause sharp hikes in pricing.

Along The Virtual Highway

It has been a while since I addressed Internet sales, so let’s catch up. Forrester Research says the Web will account for, or influence, 59 percent of U.S. retail sales by 2018. The number is already 52 percent according to Forrester’s report, “U.S. Cross-Channel Retail Sales Forecast: 2014 to 2018.” Consumers are now “preshopping” on their devices, surfing for information and deals mostly on furniture, autos and food.

Other interesting points from Forrester:

Sixty-eight percent of online adults are accessing the Web while in a store.

  • However, only 24 percent of online adults actually place orders for physical goods using their devices; they need to see and touch the product in person.
  • Between 2014 and 2018, 75 percent of U.S. retail sales growth will come from offline sales.
  • U.S. e-commerce sales, now at $294 billion this year, will reach $414 billion in 2018.

In other e-commerce news, Amazon’s second-quarter revenue was up 23 percent.

The highlights:

  • Amazon lost $126 million from year-over-year spending on technology, up $640 million, and saw an increase in fulfillment spending of $540 million.
  • Twenty-five percent of the U.S. population can now receive shipments on Sundays.
  • North American net sales in the second quarter were $19.34 billion.
  • Of that, $4.09 billion was sent back as commission to merchants who sell on Amazon.
  • International growth is substantial at $7.34 billion for the quarter, up 18.2 percent from the same period in 2013.
  • Spending on fulfillment increased 29.3 percent to $2.38 billion from $1.84 billion in 2013.

The takeaway from this is Amazon is aggressively investing in its technology and fulfillment business and is investing in expansion. It will be interesting to see how Alibaba competes as it enters the U.S. market.

More Trucking News

On the trucking front it looks like the spot freight market took a break the week of July 14 as the ITS Market Demand Index (MDI) and DAT index fell. Rates on the spot market fell 2.5 percent from the previous week but are still up 9.8 percent year over year.

The American Trucking Associations’ June seasonally adjusted For-Hire Truck Tonnage Index fell 0.8 percent from May. June tonnage is just 1.9 percent below last November’s peak numbers, so we are still in high territory. The non-seasonally adjusted number shows a decrease of 0.5 percent. Compared to June 2013, the index is up 2.8 percent.

The Cass Truckload Linehaul Index reflects an average truckload rate increase of 5.2 percent in June from the same month last year. This is the fourth straight month of year-over-year pricing increases above 5 percent.

Suffice it to say that trucking contract negotiations are difficult for shippers now as more freight shippers compete for capacity. It is not because carriers are being greedy; costs are going up as they pay more for drivers, equipment and government-mandated regulations.

Swift Transportation, the largest U.S. truckload operator, actually sold off trucks according to their latest shareholder letter. They apparently decided it was better to get rid of idle equipment than to keep it on their books because they could not find drivers.

Watch for carriers to offer even higher pay and retention bonuses, eliminate wait time and create a friendlier driver environment. The driver shortage is proving to be a serious roadblock to growth for over-the-road carriers.

On The Rails

In railroading, carload traffic was up the week of July 14 by 9.4 percent year over year and intermodal was up 5.1 percent in the same period. Congestion is still present in some lanes as new investment in rail expansion occurs.

Intermodal rates were up 3.8 percent in June year over year, even though the Cass Intermodal Pricing Index shows the rate fell 4.9 percent from May.

I expect that we will see this trend reverse as we enter the fall shipping season and truckload rates will continue to climb. The rail industry will increase intermodal pricing on pace with the truckload industry.